SNS to Sell Insurance Unit to Win EU State Aid Approval

SNS Reaal NV, the fourth-biggest Dutch lender, will sell its insurance unit and spin off property assets into a bad bank in return for European Union approval of its government takeover.

The European Commission clearance will allow the company’s

2.2 billion-euro ($3 billion) recapitalization and a 1.1 billion-euro bridge loan. The transfer of the property finance activities to a separate unit at a price above market value amounted to additional aid of 859 million euros, the EU said in a statement today. Formal EU approval will take place tomorrow due to a procedural delay, the Brussels-based commission said in an additional statement.

SNS Reaal was nationalized in February after it was unable to fill a capital hole caused by losses stemming from a property-finance unit. Dutch taxpayers are funding 9.8 billion euros in capital injections, write-offs and guarantees, a burden that was reduced during the February bailout as Finance Minister Jeroen Dijsselbloem seized the company’s shares and subordinated bonds.

“The commission found that the state aid granted to SNS Reaal is necessary to preserve the stability of the Dutch financial system, in line with the commission’s guidelines on state aid for banks during the crisis,” the EU said. “The measures allow SNS Reaal and its subsidiaries to comply with regulatory minimum capital requirements.”

SNS Reaal will be a “focused retail bank” after the restructuring, the commission said. The insurance unit will improve its viability and prepare for divestment, regulators said without giving details.

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The Netherlands agreed to a number of restrictions that will apply on SNS Reaal until 2017, Dijsselbloem said in a letter to parliament today. Those include a ban on advertising the fact that it is state-owned, and a ban on calling or buying back hybrid debt securities without prior approval from the EU, SNS Reaal said in a separate statement. It will also have to refrain from acquisitions until the end of 2016, it said.

The EU must approve large government subsidies and may impose conditions to compensate for the competitive advantage the aid gives to a company.

Financial Stability

The company, based in the Dutch city of Utrecht, had insurance operations with about 54 billion euros in assets at the end of June, compared to 128 billion euros for the group. Its Reaal insurer, which mainly offers life cover, accounted for 34 billion euros, while Zwitserleven, offering pension insurance, had about 21 billion euros of assets.

SNS Reaal’s nationalization came less than five years after the Netherlands bought Fortis’s Dutch banking and insurance units and its stake in ABN Amro Holding NV when the company ran out of short-term funding, customers withdrew deposits and investors lost confidence. That leaves the country with ownership of two of its biggest banks and insurers.

The stakes in ABN Amro Group NV, ASR Nederland and SNS Reaal are managed by the government’s NL Financial Investments agency. The competition authority approved measures today that were taken by the Dutch state to ensure competition in the industry isn’t harmed.

The Netherlands plans to dispose of SNS Reaal’s insurance operations in a private sale, while it will further investigate options for selling the bank, Dijsselbloem said.

“It can be expected the Dutch insurance industry will consolidate in the foreseeable future,” he said. “Reaal mainly has activities that benefit relatively a lot from scale, for instance individual life and pensions. That’s why a private sale is the starting point; an initial public offering is less obvious.”

The financial investments agency will present a study in March on options for selling the insurer, and advise by the summer on possibilities for selling the bank, Dijsselbloem said.